Part I - Situation and trends

2 Social Cohesion

2.1 Employment and unemployment

Unemployment and the labour market

Unemployment in the EU is declining at present, reflecting the continuing
growth of the economy and labour market reforms, which seem to be associated
with an increased rate of net job creation for a given growth in GDP.
The rate has, therefore, fallen from 10.7% in 1997 to 8.3% in August 2000
and is set to fall below 8% in 2001, a level last seen before the recession
of the early 1990s. Despite this encouraging trend, unemployment remains
unacceptably high in many parts of the EU, though if economic growth can
be sustained at its present rate, over the coming decade it could gradually
cease to be the major economic problem facing the EU, which it has been
for the past 20-25 years.

Since the early-1970s, unemployment has increased rapidly during recessions
but fallen more slowly during periods of economic recovery, while regional
disparities in levels have remained significant (See
Graph A.1, in annex). However, over the period of recovery since 1994,
when unemployment in the EU reached a peak of 11.2%, the process of job
creation has increasingly gained strength. Nevertheless, it is too early
to be sure whether the cycle of falling unemployment followed by a rebound
to a higher level is at an end. This depends on both maintaining economic
growth at around its present level, or preferably above, which in itself
should result in a high rate of net job creation (see
Graph 4 on growth of employment and GDP in the EU), and increasing
the employment-intensity of growth above the long-term trend of the past
20 years.

Unemployment combined with growing skill shortages

At the same time as unemployment is falling, labour shortages are emerging
as an increasingly important obstacle to growth right across the EU. This
was reported explicitly in the National Action Plans for 2000 of Belgium,
Denmark, Ireland, the Netherlands, Finland, Sweden and Italy, though in
the last, predominantly in the north of the country. Moreover, recent
surveys of employers in other Member States have in most cases pointed
to the difficulty of recruiting staff with the requisite skills as a major
problem hindering expansion.

The coincidence of relatively high levels of unemployment and labour
shortages ought not to come as a surprise. It essentially reflects the
highly differentiated nature of the labour market and the lack of coherence
between the growth of demand for labour and the skills on offer among
those looking for a job. Indeed, recruitment difficulties tend to be reported
in particular sectors even in periods of recession. As recovery gathers
pace and as unemployment falls - or, more accurately, as the excess supply
of labour diminishes - it is only to be expected that labour shortages,
or skill bottlenecks, will become more serious, the more so, naturally,
in regions where unemployment is relatively low, but also in other areas
where the skills of the unemployed do not match the demand of employers.
If economic growth at present rates is sustained over the longer term,
the problem of skills imbalance could well be compounded by the projected
slowdown in labour force growth, or decline in some regions, over the
next 10-15 years (see the section on demographic
trends below).

Although recruitment difficulties are at present reported in some parts
of the Union in all sectors, from information technology to agriculture
and retailing, it is evident that there is a growing shortage of workers
with IT skills in all Member States. According to the Commission report
on job opportunities in the Information Society, up to 500,000 jobs are
currently vacant because of the lack of people with the requisite skills
to fill them. Studies suggest that the problem is likely to get worse
in the future, as, indeed, is the case in other parts of the world, the
US especially. In the longer term, therefore, this could come to exercise
an increasing constraint on economic growth and employment creation in
the EU. It is a problem which can be tackled both by expanding the number
of people trained in IT skills and adapting education and training systems
to accomplish this and by encouraging the inward migration of those with
the necessary skills, or the education to acquire them, from other countries
(an approach at present being followed by the US).

Wide disparities in employment remain between Member States

As economic recovery continued in the EU, employment increased by over
2 million in 1999, or by 1.4%, slightly higher than in 1998 (1.3%) and
the highest growth rate of the 1990s. The number employed in 1999 was,
therefore, for the first time higher than in 1991 at the start of the
recession. The employment rate, however - the proportion of those aged
15 to 64 in work - at 62.1% was still slightly lower than at the beginning
of the decade.

Despite a general improvement in labour market conditions, large differences
still exist between Member States. Between 1997 and 1999, employment growth
varied from over 3% a year in Ireland and Spain to under 1% a year in
Germany, Italy and Austria. In general, those Member States with above
average GDP growth also recorded relatively high growth of employment.

Since 1994, there has only been a slight narrowing of disparities in
employment rates across the Union, stemming partly from relatively large
increases in employment in Ireland and Spain, where the proportion of
working-age population in work is below average. This convergence is likely
to continue if economic recovery is sustained, though above average employment
growth needs to spread to Italy and Greece, in particular, if disparities
are to be narrowed significantly. In 1999, the employment rate was below
60% in Spain and Belgium (if only slightly), while it exceeded 70%, the
target set for the EU in 2010 by the Lisbon Summit, in Denmark, the Netherlands,
Sweden and the UK.

but are even wider between regions

Disparities in employment are even more substantial between regions
than between countries within the EU. In 1999, the employment rate in
the top 10% of regions in the EU (defined as those with the highest rates
accounting for 10% of total population) averaged 77%, whereas the employment
rate in the bottom 10% (defined in an equivalent way) averaged under 44%.
As at the beginning of the decade, most of the regions in the top group
are located in the UK, most of those at the bottom in Italy and Spain
(see Map 2).

The extent of regional disparities varies significantly between Member
States. While they are very narrow in some countries (the Netherlands,
Austria and Sweden), they are extremely wide in others (particularly Italy,
where the gap between high employment regions in the North and low employment
regions in the South is over 25 percentage points, but also Spain and
Portugal - around 15 points).

There is little sign of any marked reduction in disparities over the
1990s. While across the EU as a whole, they have narrowed since 1997,
this followed a widening over the early 1990s (See
Graph A.2, in annex). In Italy, Portugal and, to a lesser extent,
Spain, the gap in regional employment rates appears to have widened over
the period of recovery. Moreover, in Greece, employment rates fell in
most regions over the 1990s.

Achieving a more balanced development in terms of employment remains
one of the biggest challenges for the Union in the future and one which
is likely to require continued policy intervention, in developing regions,
to help strengthen their economic base, and in those undergoing restructuring,
to help smooth the shift to growing sectors of activity.

The gender gap in employment remains pronounced despite gains made
by women

The number of women in employment has risen strongly in the EU over
the past ten years. As a result, the gap in employment rates between men
and women narrowed significantly over the 1990s, by some 5 percentage
points, though in 1999, it was still some 19 percentage points. Moreover,
it should be noted that over 70% of net additional jobs going to women
between 1994 and 1999 were part-time. In the latter year, around a third
of all women in employment in the EU worked part-time as opposed to 6%
of men.

The gender gap is even wider in many Member States and regions. In regions
with a high rate of net job creation, both men and women tend to benefit
by being able to find employment, while job shortages in low employment
regions generally seem to hit women harder than men. The gender gap is,
therefore, narrowest in the three Nordic countries and the UK and widest
in Italy, Spain and Greece.

The small gap in many - but by no means all - parts of Northern Europe
reflects, on the one hand, a longer tradition of gender equality, positive
social attitudes towards women working and child-care provision. On the
other hand, it also reflects a high proportion of part-time employment
among women(See Map A.3)). Indeed, the relative
number of women with full-time jobs in lagging regions is not very much
lower than in the rest of the EU.

The growth of part-time working is closely related to the development
of the service sector, in which firms tend to be more flexible over working
hours but in which there is also a growing need to employ people at weekends
and in the evenings. Women therefore have more possibility for combining
paid employment and family responsibilities, so increasing their ability
to pursue working careers.

Large-scale job losses in agriculture

Employment in agriculture in the EU has declined markedly, from 7.6%
of the total employed in 1988 to 5.6% in 1993 and 4.4% in 1999. The largest
decline between 1993 and 1999 occurred in Ireland (by 4.5 percentage points)
and Greece (4.3 points).

The importance of multiple jobs has also remained much the same, 28.7%
of farmers having a paid job outside agriculture in 1997. In Sweden, Finland
and Germany, the figure was over 45%. In the southern Member States, where
26% of farmers had multiple jobs, almost 63% of the work force was employed
part-time.

Services are key to employment growth

Over the past 25 years, all of the rise in employment in the EU has
occurred in services while jobs in industry and agriculture have declined.
Over the period of 1994 to 1999, the share of employment in services rose
by some 2½ percentage points, continuing a long-term shift of both
employment and output towards this sector, which is evident in all Member
States.

Employment growth in services, however, has been lower in the EU over
the 1990s than in the US and this has been combined with more job losses
in agriculture and industry. Indeed, in the EU, growth of employment in
industry has been relatively small even over the period of economic recovery
since 1994, though this is partly due to a significant reduction in Germany,
where the pace of recovery has been modest.

The development of services has occurred at different rates across the
Union. In 1999, the general pattern of employment (see
Map 3)is for the highest employment regions - predominantly located
in the UK, Netherlands and the three Nordic countries - to have a large
share of jobs in services, and the lowest employment regions - largely
located in the Mediterranean - to have a high concentration of jobs in
agriculture. In between, there are regions with a high share of employment
in industry - predominantly located in an arc covering eastern France,
parts of Germany and northern Italy.

Overall, services account for a major part of disparities in employment
rates across the EU. Most of the additional jobs which exist in high employment
regions as compared with low employment ones are in services, though mostly
in the more advanced sectors, education, health care, business and financial
services, where skill and education requirements are relatively high.
This underlines the importance of a well-educated work force for boosting
employment as well as the development of the knowledge-based economy.

Regional disparities in unemployment remain pronounced

Unemployment varies substantially between regions in the EU (see
Map 4). Despite economic recovery, unemployment rates were still over
20% in some parts of southern Europe in 1999. There were also, however,
a number of areas in northern Europe undergoing restructuring, where rates
were well over 15%.

Regional disparities in unemployment have widened over the 1990s, following
the reduction which occurred in the high employment growth years of the
late 1980s. While economic recovery has reduced disparities slightly since
1995, it has so far failed to offset the widening during the earlier period
of recession. Accordingly, while unemployment in regions where rates were
lowest (taking those accounting for 10% of total population) averaged
3% in 1999, much the same as in the early 1970s, it averaged 23% in those
where rates were highest (excluding the French DOMs), much higher than
25 years ago.

The regions with the lowest unemployment in the EU were much the same
in 1999 as 10 years before, as were those where rates were highest. Much
the same is true in Member States, where regional differences are similarly
wide (see Graph 5 on unemployment rates by country
and regional extremes in 1999). As in the case of employment rates,
differences between regions are greatest in Italy, where, in 1999, the
rate in those with the highest levels (in the south) was almost 25 percentage
points higher than in those with the lowest (in the north). On the other
hand, in all regions of Austria, the Netherlands and Portugal, unemployment
was below the EU average.

Long-term unemployment falling but still a serious problem

The fall in unemployment in recent years has been accompanied by a reduction
in long-term unemployment. Between 1997 and 1999, the number of people
who had been out of work for a year or more declined by more than overall
unemployment, from 49% to 46% of the total unemployed, suggesting that
active labour market measures combined with high rates of net job creation
have improved access to employment for those most disadvantaged on the
labour market.

The rate of long-term unemployment in the EU, however, is still higher
than at the beginning of the 1990s. It is particularly high in southern
Italy, in a number of Greek regions and in Belgium, where over 60% of
those out of work were long-term unemployed in 1999. By contrast, the
proportion was under 20% in a number of regions in Austria, the UK and
Finland
(see Map 5).

Overall, long-term unemployment is much higher in regions with high overall
unemployment and has declined hardly at all over the economic recovery
in the lagging regions. This reflects the persistence of structural problems
in these areas, such as mismatches between the jobs on offer and the skills
available on the labour market, which are unlikely to be resolved simply
by higher rates of economic growth at the national or EU level, which
need to be combined with active measures to improve the employability
of those affected and help them adapt to structural change.

Unemployment of young people declining in the EU...

Rates of unemployment in the EU remain much higher for young people
under 25 than for older people and for women as opposed to men. Young
people in the labour force are almost twice as likely to be unemployed
as those of 25 and over. In Spain, Finland and Italy, youth unemployment
was over 30% in 1999 and in some regions in southern Italy and Spain,
over 50% (see Map 5).

Despite the fact that most of the net additional jobs created over the
past 10 years have gone to women, job growth has only just kept pace with
the rising number of women joining the labour market. Consequently, unemployment
among women is still much higher than for men in most parts of the EU,
with rates for women exceeding 35% in parts of Spain and Italy.

While unemployment of young people has declined by more than for those
of 25 and over during the period of recovery, the rate for women has fallen
by less than for men. Unlike in the case of the long-term unemployed,
however, both young people and women have experienced a fall in unemployment
in the most lagging regions.

Labour market developments in the candidate countries

In recent years, the data available on employment and related developments
in the candidate countries have improved significantly with the introduction
of labour force surveys in most of them, on the same basis and adopting
the same conventions as the EU Labour Force Survey conducted by Eurostat.
However care should be taken in interpreting the figures which result
from these surveys because, even though the conventions are the same,
they reflect a different underlying reality.

In the candidate countries of Central Europe (CECs), employment has fallen
significantly since the beginning of the transition as a result of a large
fall in output as well as restructuring. In the CECs as a whole, the number
employed is estimated to have fallen by 15-20% between 1989 and 1997,
with the largest fall occurring in the early years of transition (1989
to 1993). By 1994-95, conditions had stabilised and in a number of countries,
employment began to rise, though by not nearly enough to compensate for
the earlier job losses. In 1998 and 1999, economic growth slowed down
again and employment began to fall in most countries, most especially
in the Czech Republic, Slovakia and Estonia. In Hungary, however, partly
because of the earlier implementation of economic and labour market reforms
than in other countries, GDP continued to grow and employment increased
by around 3% a year between 1997 and 1999.

In 1999, the overall employment rate of the candidate countries averaged
just under 61% of working-age population, only slightly lower than in
the EU. Disparities in employment rates, however, widened between countries
over the 1990s as employment fell, the scale of decline reflecting, on
the one hand, the success of the transition and, on the other, the extent
to which jobs remained protected against market forces, as well as the
extent of employment in subsistence agriculture. In 1999, the employment
rate ranged from some 54% in Bulgaria to 66% in the Czech Republic.

Regional disparities in employment in the candidate countries are narrower
than in the EU, but still substantial. In the top 10% of regions (defined,
as above, as those with the highest rates accounting for 10% of their
total working-age population), the employment rate averaged almost 70%,
in the bottom 10%, it was under 52%. Disparities are also wide in a number
of countries, reflecting the difference between the capital city region
and the others (in Slovakia, the gap between the top and bottom 10% of
regions was 17 percentage points).

Employment of women in the CECs has, in many cases, declined by less
than that of men over the transition period, partly because of the concentration
of jobs losses in industry, partly because of the growth of service activities.
Although the employment rate of men exceeds that of women in all candidate
countries, the gender gap has remained smaller than in most EU Member
States. Moreover, many fewer women work part-time in the former than in
the latter and the difference between men and women is much less pronounced.
(Overall, some 8% of all those in employment work part-time in the candidate
countries as opposed to 18% in the EU and women account for only 58% of
all part-timers as against 80% in the EU.)

The changing sectoral pattern of employment in candidate countries

Economic transition in the CECs implies a marked shift in the sectoral
pattern of employment, though comparison of the present structure with
that in the EU suggests that there is still a long way to go. There remain
significant differences between regions both in the structure of employment
and in unemployment.

Employment in industry is estimated to have fallen by between 25-50%
in the CECs over the 1990s, but despite this, the proportion of workers
employed in declining industries in many regions remains high.

Many regions with high employment in agriculture have also suffered a
disproportionate loss of jobs, though agricultural employment in most
candidate countries remains far above the level in the EU. In 1999, taking
the countries together, it accounted for almost 22% of the total as against
only 4.5% in the EU, indicating that the process of modernisation has
still to be undertaken and that potentially severe social as well as economic
problems remain to be tackled in the future.

Employment in services has risen significantly in all candidate countries,
though by not nearly enough to compensate for the job losses in industry
and agriculture. Services account for only around 46% of the total in
work in the region as a whole compared with 66% in the EU, which indicates
the scale of the change which lies ahead.

Overall, many regions in the CECs have a less diversified employment
structure than their counterparts in the EU and, at the same time, have
to contend with problems of high unemployment, poor infrastructure, low
investment and lack of enterprise. The objectives of future regional policy
in the CECs are, therefore, to diversify the sectoral pattern of economic
activity, to strengthen infrastructure and support facilities, to identify
locational advantages and development potential and to remove obstacles
to growth.